Excerpts from analyst's report
UOB Kay Hian analyst: Loke Chunying (left)
Recent Placement Signals Market Confidence In Isoteam
VALUATION
Maintain BUY with a slightly lower target price of S$0.705 based on 9.6x FY16F PE. The company is currently trading at 8.2x FY16F PE with a net cash of 14 cents/share.
WHAT’S NEW
ISOTeam (ISO) has proposed the placement of up to 9m new shares (to an institutional investor and individual investors) at S$0.58/share, which will raise net proceeds of up to S$5m for the group to fund its capex, inorganic business expansion and general working capital.
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ISO also announced that it has secured S$24.8m worth of contracts, bringing its total contracts secured for FY15 to S$78.1m.
OUR VIEWS
Strong order win momentum continues. Factoring in the most recent contract wins, we note that ISO has secured a total of S$78.1m worth of contracts for FY15, which is 17.1% higher on a yoy basis. (FY14 contract wins: S$66.7m)
Maintain our profit forecast. We moderate our revenue forecast down as we had earlier been too aggressive in our contract wins estimate, but keep our profit forecast relatively unchanged as we adjust our gross profit margins higher to 22%, Despite rising cost pressures, ISO has displayed resilience by maintaining its gross profit margins at about 22% for 2HFY14 and 1HFY15. We believe these margins are likely to be sustainable due to cost savings from economies of scale, and ISO’s ability to pass on the bulk of the cost increases to its customers (mostly town councils) through higher tender bids due to the short term nature (below 1 year) of its projects.
Recent placement signals market confidence in ISO. The recent placement is the second placement exercise undertaken by ISO. To recall, in Dec 14, strategic partner and supplier Nippon Paint, subscribed to 2.8m new shares of ISO at S$0.50/share.
Maintain BUY with a slightly lower target price of S$0.705 based on 9.6x FY16F PE.
